U.S. Stocks Fall as Budget Debate Concern Erases Rally

U.S. Stock Futures Decline on Concern About Fiscal Cliff, Greece
Home Depot added 1.1 percent to $61.84. U.S. real estate values are rebounding after a five-year decline, sending homeowners back to stores for remodeling supplies. Photographer: Andrew Harrer/Bloomberg

U.S. stocks fell, halting a two-day gain in the Standard & Poor’s 500 Index, as concern about the federal budget debate erased a rally led by Home Depot Inc.

Microsoft Corp. slipped 3.2 percent after saying its Windows president is departing. AK Steel Holding Corp. tumbled 18 percent as it forecast a wider-than-anticipated fourth-quarter loss with a decline in prices for the last three months of the year. Home Depot, the largest U.S. home improvement retailer, rallied 3.6 percent after profit beat estimates.

The S&P 500 dropped 0.4 percent to 1,374.53 at 4 p.m. in New York, after rallying as much as 0.6 percent earlier in the day. The Dow Jones Industrial Average decreased 58.90 points, or 0.5 percent, to 12,756.18. Volume for exchange-listed stocks in the U.S. was 6.2 billion shares, 3.7 percent above the three-month daily average.

“The stock market is going to be captive to Washington for the time being,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “The market would like to go up a little bit from here after it has been beaten down, but it’s going to be hard pressed to sustain a rallying state until we have resolution on the fiscal cliff.”

The S&P 500 lost 2.4 percent last week, the biggest decline in five months, as President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The benchmark gauge for U.S. equities has lost 6.2 percent since its high for the year on Sept. 14, paring its 2012 gain to 9.3 percent.

$607 Billion

If Congress doesn’t act by the end of the year, $607 billion in automatic spending cuts and tax increases are scheduled to take effect starting in January. Obama invited the top Democratic and Republican leaders to the White House this week to begin talks on a plan to avert the fiscal cliff.

Obama is meeting with labor leaders today and business executives such as David Cote of Honeywell International Inc., Alan Mulally of Ford Motor Co., and Kenneth Chenault of American Express Co. tomorrow. He’s trying to build support for extending middle-class tax cuts now and designing a “balanced” approach that relies on spending cuts and tax increases that would require immediate concessions from Republicans.

“The budget uncertainty is a risk,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “All will depend on Obama’s leadership. The Greek debt problem is a risk that remains. We’re not out of the woods yet.”

‘Constructive’ Meeting

Stocks rose earlier after Spanish 10-year bonds reversed a decline, leaving the yield on the securities four basis points lower at 5.85 percent as European policy makers worked to alleviate the region’s debt crisis. Equities also gained as Greek Finance Minister Yannis Stournaras told a European Parliament hearing that yesterday’s euro-area meeting was “constructive” and he expects an accord to be reached on rescue funding at a Nov. 20 meeting.

The euro-area finance ministers gave Greece two extra years until 2016 to wrestle down its budget deficit to 2 percent of gross domestic product, pledging to plug the resulting financing gaps in order to keep the country in the single currency.

Finance ministers put off until Nov. 20 a decision on how to cover additional Greek needs of as much as 32.6 billion euros ($41 billion) and left unclear whether the International Monetary Fund will continue to contribute.

Microsoft Slips

Technology companies had the largest decline out of 10 groups in the S&P 500 today, losing 0.8 percent. Microsoft retreated 3.2 percent, the most in the Dow, to $27.09. Windows President Steven Sinofsky is departing, while Julie Larson-Green will take charge of all software and hardware related to the flagship operating system. The changes are effective immediately, the world’s largest software maker said.

Cisco Systems Inc. jumped 6.9 percent to $18.02 as of 5:13 p.m. in New York. After the market close, the biggest maker of computer networking equipment reported a quarterly profit that exceeded analysts’ estimates as price reductions helped spur sales and cost cuts kept margins intact.

AK Steel fell 18 percent to $4.50. The supplier of the metal to U.S. automotive and construction customers said average steel selling prices will be down 5 percent compared with the third quarter in part because of worsening global business conditions. Lower raw-material costs won’t fully make up for the decline in prices, it said.

Weatherford International Ltd. lost 16 percent to $9.15. The world’s fourth-largest oilfield-services provider reported third-quarter revenue of $3.82 billion, less than the $3.9 billion average of 24 estimates compiled by Bloomberg.

Big Lots

Big Lots Inc. slumped 5 percent, the biggest decline in the S&P 500, to $27.48. The discount chain was cut to sell from hold by Deutsche Bank analyst Charles Grom. The Columbus, Ohio-based company’s increasing use of promotions and “lackluster” store checks raise concern margins will become challenged, New York-based Grom wrote in a note.

Home Depot added 3.6 percent to $63.38, its highest level since 2000. U.S. real estate values are rebounding after a five-year decline, sending homeowners back to stores for remodeling supplies. Sales at Home Depot locations open at least a year rose 4.2 percent, the sixth straight quarterly increase, as customers visited more often and spent more per trip.

Xerox Corp. gained 1.4 percent to $6.42 after it boosted its quarterly dividend by 35 percent to 5.75 cents a share. The company also increased its share buyback plan by $1 billion and gave a fourth-quarter profit forecast that missed analysts’ estimates while it moves to become a services-led business amid declining printing revenue.

Strategic Opportunities

Greenbrier Cos. jumped 20 percent to $16.73. Activist investor Carl Icahn is planning talks with the railcar maker that may include strategic opportunities after buying a 9.99 percent stake in the business, which he described as undervalued.

Advanced Micro Devices Inc., the second-largest maker of processors for personal computers, rose 5 percent to $2.09. Reuters reported that the company hired JPMorgan Chase & Co. to explore options including a sale. AMD said it isn’t actively pursuing a sale of the company or a significant sale of assets.

U.S. stocks will continue to advance toward the end of the year as this is traditionally a strong period for equities, according to Bank of America Corp.’s Mary Ann Bartels. There may be a “sharp correction” in stock prices at the beginning of 2013 as the bull market that began in March 2009 enters its fourth year, she said.

December has been the best month for the S&P 500 since 1950 with an average gain of 1.7 percent, according to the Stock Trader’s Almanac. The stock market may also get a year-end boost from a so-called Santa Claus rally -- an upswing in the last five days of the year and the first two in January, the almanac said.

“The market is oversold and is still likely to have a choppy year-end rally,” Bartels, a New York-based technical analyst with Bank of America, wrote in a note yesterday. “The hurdle after the election is typically the first quarter in the following year,” she said. “Where we will be wrong is if the S&P 500 can not hold 1370.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE